Safe-haven demand drove markets early Monday after the United States and Israel carried out a joint attack on Iran. The US calendar includes the ISM Manufacturing PMI for February later in the day. Iran retaliated by targeting US assets across the Gulf after the strikes killed Iran’s Supreme Leader Ayatollah Ali Khamenei and up to 40 senior officials. Hezbollah said it struck Israeli missile defence sites, and NBC News reported three US service members killed in action.

Escalation Across The Region

BBC News said Iranian strikes continued into Monday, with explosions reported in Bahrain and Dubai, and smoke seen near the US embassy in Kuwait. BBC also reported that an Iranian missile strike killed nine people in Beit Shemesh in Israel. Oil prices jumped after Iran’s Islamic Revolutionary Guard Corps said no vessels may cross the Strait of Hormuz. WTI rose above $75, its highest since June, then eased to just over $72.00, still up more than 7% on the day. Gold rose more than 2% to a fresh monthly high above $5,400. The US Dollar Index rose about 0.75% to around 98.35, while US stock index futures fell 1.3% to 1.8%. USD/CAD held near 1.3650 as higher oil supported the Canadian Dollar. EUR/USD fell 0.8% to around 1.1720, GBP/USD dropped nearly 1% to around 1.3360, and USD/JPY rose over 0.5% towards 157.00.

Volatility And Hedging Strategies

We are seeing a massive spike in market fear, which means volatility is the main trade right now. We expect the CBOE Volatility Index (VIX) to push well above 35, similar to the levels seen at the start of the Ukraine conflict back in 2022. Derivative traders should consider long volatility strategies through VIX futures or options on volatility ETFs. The closure of the Strait of Hormuz is a critical supply shock, as roughly 21% of the world’s daily oil consumption passes through it. We saw a smaller disruption in 2019 when Saudi facilities were attacked, causing a nearly 20% price spike in a single day. Given the scale of this conflict, buying call options on WTI and Brent crude futures looks like a primary strategy. With US stock futures already pointing sharply lower, we should be looking at protective put options on major indices like the S&P 500 and Nasdaq. Today’s ISM Manufacturing PMI for February will be old news, as the market is now pricing in a sharp economic slowdown due to soaring energy costs. This is a much larger shock than the regional banking fears we navigated back in 2025. Gold is acting as the primary safe haven, and the move above $5,400 confirms this powerful trend. With geopolitical risk at its highest in decades and the threat of oil-induced inflation rising, we should expect continued demand for the metal. Buying call options on gold futures or gold-backed ETFs is a direct way to position for further escalation. The flight to the US Dollar is intense, and we expect this to continue punishing the Euro. Europe’s significant reliance on energy imports, with the EU importing over 95% of its crude oil, makes it extremely vulnerable to this oil shock. Traders will likely find value in buying put options on the EUR/USD pair. Despite typical risk-off sentiment, the Japanese Yen is weakening against the US Dollar as capital seeks the ultimate safety of US markets. This suggests we should look at call options on USD/JPY, betting that the dollar’s dominance will overshadow the Yen’s traditional safe-haven role. The move towards 157.00 indicates a strong momentum that is likely to persist. The Canadian dollar is being supported by the surge in oil prices, creating a tug-of-war against the strong US dollar. This makes USD/CAD less predictable, so traders might consider range-bound strategies like selling strangles if they believe the two forces will balance out. Otherwise, it may be best to avoid this pair until a clear direction emerges. Create your live VT Markets account and start trading now.

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